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MAY 31 2017

Post fall, Coal India a Buy for high dividend yield

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 31st MAY 2017


After losing over 17 per cent in the past three months, Coal India's stock has become attractive for investors who prefer high dividend yield. At Tuesday's market price of Rs 267.1 on the BSE, the stock's dividend yield was 7.3 per cent at the FY17 dividend of Rs 20 per share. Assuming a more conservative dividend payout of Rs 17 for FY18 after considering lower coal prices, the yield works out to be 6.5 per cent -close to the fixed deposit rates offered by some banks.

Coal India's stock hit a 52-week low on Tuesday following lower than expected March quarter performance. Operating profit was Rs 3,390 crore, 38 per cent lower than the year ago due to salary provisions of Rs 2,100 crore.

Higher salaries took away the benefits of higher volume and price realisations. Volume rose 4.2 per cent year-on-year and 6.5 per cent from the quarter ago. Realisations across categories, sold on agreement basis, e-auction sales and washed coal, also showed an improving trend, up 7 per cent, 3 per cent and 36 per cent, respectively, on quarter-on-quarter basis. Net sales rose 8 per cent year on year to year on year to Rs 23,171 crore.

The current stock price reflects the company's muted performance and weakness in coal prices. Analysts expect 6 per cent volume growth in each of the next two years in anticipation of domestic coal substituting the imported coal once the new coal linkage policy `Shakti' is implemented.However, in the near term, the realisations may remain subdued.


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